Shares of FMC Technologies Inc. (FTI) hit a 52-week high of $56.04 on May 6. In fact, the Houston, Texas-based oil drilling equipment maker has seen its stock price climb some 30% since the beginning of the year. This price appreciation can be attributed to its diversified product portfolio, proprietary technological expertise, a strong backlog position and favorable outlook for subsea activity levels.

Why the Bullishness?

FMC Technologies is particularly well positioned in the subsea systems market. It is the company’s largest and fastest-growing business, accounting for about two-thirds of revenue. Subsea products have seen an increase in interest, and we expect earnings in this segment to strengthen – especially due to FMC Technologies’ leadership position in subsea production systems, including subsea trees, controls and manifold and tie-in systems.

Order flow and backlog for subsea products and services will continue to be healthy and trend higher. FMC Technologies remains poised to receive a large share of big contracts moving forward. We are further encouraged by the company’s recent subsea equipment deals with industry giants like Brazil’s state-run energy powerhouse Petroleo Brasileiro S.A., or Petrobras (PBR) and British major BP plc (BP).

FMC Technologies’ strong backlog, which now stands at more than $5 billion, not only reflects steady demand from its customers but also offers long-term earnings and cash flow visibility. This enables the company to navigate uncertainty better than many of its peers.

However, we remain worried on valuation grounds. At current multiples – significantly higher than peers – we have a difficult time justifying a sufficient enough potential return for investors. At the same time, markets remain competitive with pricing likely to be weak in the near future.

This accounts for FMC Technologies’ current Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Stocks to Consider

With FMC Technologies shares trading at all-time highs, any upside from here may be limited. Meanwhile one can look at Natural Gas Services Group Inc. (NGS) as an attractive investment. This U.S. energy machineries provider – sporting a Zacks Rank #2 (Buy) – offer value and is worth accumulating at current levels.BP PLC (BP): Free Stock Analysis Report